Two questions: 1) Why does Turbo Tax recommend I expense assets less than $200 that have been placed into service in 2021; 2) Does California recognize this?

[Think57]

Hello. 

1)  When I add an asset placed into service in 2021 to be depreciated, on the 5th screen in, when using Step by Step, after having entered such data as cost of asset, date placed into service, Turbo Tax asks the following, and would like to understand why and under what tax provision (Turbo Tax does not provide any backup information on the screen).  Does anyone know?

How would you like to write off this item?

     Based on the cost of the item ($150), we recommend you write off this item as an expense instead of as an asset.

    Generally, items that cost $200 or less should be expensed (the full value of the item is deducted this year) rather than depreciated (the value of the item is deducted over a period of several years).

2) If I am expensing assets less than $200 on our Federal Return, do I have to make depreciation adjustments when I do our California return?  Hoping that California recognizes this, and if not, Turbo Tax somehow handles it automatically as I complete our Federal return and move on to our California return.

Thank you in advance for your help, Think57

[ThomasM125]

The expense option is per IRS code 263(a) and is known as the de minimis safe harbor rule. If your assets cost less than $2,500 you can treat them as expenses in the year purchased. The purpose is to simplify your tax return preparation. California does honor the rule, so no adjustment is required on that return.

IRS code section 263(a) 

California Regulations 

@Think57

[Edited 3/8/22 at 12:32 PM PST]